SpaceX IPOs today. One hallmark of the largest IPO in history : Elon Musk’s astoundingly low cost of capital. Despite raising 25x more than the typical founder, Musk retained ownership in the top decile.
Some founders raise $2m for an idea. Others raise $15m. Yet others raise hundreds of millions.
Inverting1, we can say some people have a high cost of capital & others a low cost of capital.
At inception, cost of capital is purely personal. Founders & an idea. No business exists yet to evaluate. Over time, the combination of the team & the business’s performance dictates cost of capital.
Early wins lower the cost of the next raise. Cheaper capital funds bigger bets. Bigger bets produce bigger wins. Musk’s trajectory from Zip2 to PayPal to Tesla to SpaceX is the flywheel in motion.
The flywheel attracts capital from everywhere. Tesla’s retail ownership is 7x higher than the S&P 500 average2. SpaceX allocated a large portion of the offering to retail as well.
Musk raised more capital than nearly any founder in history & retained more ownership than most. His personal cost of capital made that possible.
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“Invert, always invert” is a mental model popularized by Charlie Munger, originating from 19th-century mathematician Carl Gustav Jacob Jacobi. ↩︎